Do CEOs Deserve Their Salaries?

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Last year, a number of corporate chieftains grabbed the headlines with their demonstrations of greed. Enron, Arthur Andersen, WorldCom... the media was quick to pounce on corporations and their leaders who abused their positions. Of course, the media is a business in itself. It needs to win and sustain an audience, and oftentimes media outlets will try to grab people's attention by exploiting facts and manipulating numbers. Things become sensational even when they are not. Granted, there have been numerous cases of corporate excess and greed. But these cases represent exceptions and not the rule.

This intense focus on a few corporate misdeeds has had the effect of painting all CEOs with the same brush. When we read of an executive's salary or retirement package, we're quick to suspect that those earnings are ill-gotten, or at least excessive. We know that the former is the product of media exaggeration, but what about the latter? Are CEOs too well paid?

the numbers behind ceo salaries

A recent survey of America's top 50 CEOs showed that their pay rose 5% to a whopping average annual salary of $10.7 million. That's a lot of dough, without question, and some of the CEOs are undoubtedly drastically overpaid.

But if one takes into account just how much the top 50 companies earn, it puts matters into perspective. How well did the Fortune 50 do? Well, on average, they generated $4.58 billion in profits from $64.2 billion in revenue — not too shabby. That means that, on average, a top 50 CEO made 0.016% of the revenue his company generated, or 0.23% of their profits. That's not too much, now is it?

Mind you, this CEO data is a bit skewed. For example, the survey reports that Stanley O'Neal was near the top of the list, having made $32 million in 2004. But O'Neal's company, Merrill Lynch, is not in the Fortune 50, coming in instead at number 58. Merrill generated $3.99 billion in profits on revenue, which means that Mr. O'Neal's salary was equal to 0.11% of revenues... start the witch hunt!

Yet even when taking Mr. O'Neal's income into account, CEO pay is not entirely out of whack. Companies and CEOs both tend to make a lot of money, but they also employ a lot of people and pay a lot in taxes. Do they go out of their way to lay people off so they can make more profits? Sure, they do. Do they go out of their way to pay less taxes? You'd better believe it. Yet this does not make large corporations any different from smaller businesses or individuals, all of whom strive to save money and pay less in taxes. The fact that their profiteering efforts take place on such a grander scale, however, make the corporations seem somehow more guilty.